Wool forward contract trading increases as ‘fair value’ search continues

Michael Avery, Southern Aurora Wool., February 10, 2017

Southern Aurora Wool logo dec-2016WOOL forward contracts traded in slightly better volumes this week as buyers and sellers searched to establish fair value at historically high levels.

Interest again centred around the 19 micron contract, with March and April trading up 30 cents, mirroring the rise in the auction market for the second successive week. Both bidding and offering into the spring remains light with buyers reluctant to commit at historically high levels and sellers reluctant to discount so heavily to cash. Risk and volatility remain high.

Medium wools are still to recover from their late January falls. Buyers are cautious, with off shore demand still to materialise.

Prices were steady this week and we may see improving forward demand on the 21 micron contract as the price gap between 19 and 21 microns continues to widen. Since sales opening in January, the basis between 19 and 21 micron has widened from 200 cents to 340 cents.

Demand still remains on options. Option sellers are looking for higher premiums to compensate against the higher volatility of the market seen over the last month. Sellers will need to adjust their strike levels if they wish to see better value premiums.

We are now in uncharted territory for 18.5, 19 and 19.5 microns and getting close to decade highs on 18, 20 and 21 microns. Crossbreds are looking to find a level after their steady declines over the last season.

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Trade summary

March        19 micron      1730/1750 cents     21.5 tonnes

April           19 micron      1710 cents              10 tonnes

April           28 micron       660 cents              10 tonnes

May            20 micron      1490 cents               8.5 tonnes

June           19 micron       1680 cents             10 tonnes

Sept            19 micron       1640 cents             10 tonnes

Total 70 tonnes

Source: Southern Aurora Wool.


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